A low volume, high quality source from the demand side perspective.The podcast is produced weekly. A transcript is posted on the day of.

Sunday, December 1, 2002

Altering B&O to VAT is an OK way to go, Sunday, December 1, 2002

[published Seattle P-I, Sunday, December 1, 2002]

Altering B&O to VAT is an OK way to go

Thank you for Ted Van Dyk's Thursday column on the state's tax system and the upcoming Gates Commission report. The persistent call for a state income tax by well-meaning public-minded citizens is a non-starter. It is also superfluous if the state were to adopt the value-added tax that has been in discussion in the Gates Commission. An extremely simple, easily understood adjustment to the current B&O tax, just allowing the deduction of input costs, would immediately and completely alter its character from a gross sales tax to a value-added tax. You wouldn't even have to change the name.

The revised tax would need revised rates, of course, but it can be very simply shown that the new tax is assessed on income. Revenue minus inputs equals return to labor and profits. Labor and profit are identical to income from business activity. There is no need for a complex new system to collect from individuals in the state, because collection can and should be done through the current system. The taxed entities are identical.

How close is this to an income tax? Close enough that the feds would allow it to be deductible from the federal income tax (with some appropriate assertions by the state).

A state income tax would be largely redundant.Will the Gates Commission make this simple, sweeping, logical proposal? I hope so. Will the commission get bogged down in schemes to benefit business or property owners or reduce regressivity? I'm afraid so. Why mess around with another run at an income tax? We already have an income tax -- the federal tax, and it's no shining example of fairness or ease of filing.

The Gates Commission has worked hard, but its report is likely to be drowned in special interest analysis. The alteration of the B&O to a value-added tax base is a winner. We can eliminate a particularly egregious form of sales tax, shift the tax base to income and offer a bonus federal tax break to our citizens.

Let's do it.

Alan Harvey

Thursday, September 5, 2002

Bush v. Hoover an insult to Herbert PI Thursday, September 5, 2002

[Seattle P-I]
Thursday, September 5, 2002

Bush-Hoover comparison was an insult to Herbert
Marianne Means' column comparing George Bush with Herbert Hoover ("Bush must change economic course," Aug. 27) does that president a disservice. Hoover, I mean.

No matter the verdict of history, or hindsight, as a former secretary of the Commerce Department and a student of government, Hoover was capable and prepared when he entered office. He was presented with an economy that lacked the market controls we have today and in which the federal government played a much smaller role than it has since.

The learned scholars whom Means cites will have to agree that Franklin Roosevelt's initial platform was not so dissimilar to Hoover's. FDR's New Deal was invented some time after he took office.

"Gee-Dub," on the other hand, was prepared neither by training nor intelligence. He was handed a strong, stable economy, one that has simply not been able to withstand the hammering his obtuse policies and boardroom deals have inflicted on it.

Allowing oil companies and energy traders like Enron full run of the field for two years extracted untold billions from consumers and businesses alike, and threw long-term planning into confusion. Power, transportation and consumer's disposable income all felt the bite. The airlines, for example, were already in trouble from this cause prior to 9/11.

Then he pushed through tax breaks for the wealthy, a scheme advertised as an economic stimulus. The result instead has been a drag, creating deficits out of surpluses, leading to higher interest rates in the future and withdrawing significant government demand from the market.

Means is right when she implies stagnation and recession will be the result of Bush's continued political favoritism and intransigent addiction to tax cuts. She is wrong to ascribe to him the purpose and principle that motivated Herbert Hoover.

Alan Harvey

Wednesday, August 14, 2002

Drivers are paying tolls at gas pump PI Wednesday, August 14, 2002


Wednesday, August 14, 2002

Drivers are paying tolls at gas pump

Yes, people who use the roads ought to pay for them, but the solution of high-tech tolls suggested in the July 31 P-I ("Make tolls part of the transportation fix" by Chris Weber) constitutes tokenism, not payment. One had higher hopes for a contribution from an economist on the transportation mess.

First, note that people who drive already are paying for road-building because the 18th Amendment of the state constitution limits the use of gas taxes to highways. The gas pump is the toll booth. Drivers are just not paying for other public services, since motor fuels are exempted from state sales tax. One wishes our learned academics had called for a reversal of this practice. None of the other states cited allow this exemption.

The doubling in the number of cars projected over the next 20 years is what we need to address. Tolls won't do that. Tolls will never scratch the surface of the immense costs of construction, let alone maintenance, pollution mitigation, environmental rehabilitation and, of course, diplomatic and military operations in pursuit of oil. These costs are dismissed by economists by and large as "externalities." The elements that are not externalities are mostly those captured in the brief event of purchasing gasoline and automobiles (and include monopoly profits to OPEC and oil companies).

What is needed is what J.K. Galbraith called for more than 30 years ago -- a national public transportation agency with authority to design, develop and implement a comprehensive solution to moving people and freight. It should be an agency with the ability to assign costs and capacity in a rational manner. This is no less pragmatic than Weber's suggestion.

For the record, in addition to keeping fares low, it will be necessary to increase capacity if more drivers are to opt for public transit.

Alan Harvey

Friday, March 15, 2002

Jack Kemp Dis PI Wednesday, May 15, 2002

 Wednesday, May 15, 2002

Supply-side economics not borne out by evidence
You do readers a disservice by presenting the views of Jack Kemp. While he offers statistics and many self-congratulations, his supply-side economics is a matter of political faith that is not borne out by evidence.

For example, his May 8 column goes through a sequence of statistics and comes up with "after-tax returns to profit and labor must rise," by which he means more tax cuts. Never mind that the original Bush tax cuts were followed immediately by a recession that -- if it has ended -- has ended in a period of near stagnation. Never mind that in our own state the tax cuts following Initiative 695 did nothing to stimulate our economy and probably hurt us statewide. Never mind that the same policies were tried in the 1980s with the result of tremendous government deficits. Never mind that the same policies under Bush II are yielding the same results. Never mind that the high tax regimes of Europe have produced excellent growth and quality of life for their citizens, not the quagmire imagined by Kemp.

Supply side is a bankrupt economic idea, no matter its wealth of right-wing political exponents such as Kemp. Our own state recently commissioned a report that showed tax rates placed a distant seventh in importance with regard to business siting decisions. The list was led by "market." A market economy will always be led by the market -- the demand side of the equation. The market is composed of demand from consumers, business and government. The sooner we learn this, the better off we'll all be, including the business interests that Kemp counts as his constituents.

Alan Harvey